New Neighborhoods Spring Up in Old Locations

The housing industry is rethinking the types of homes they want to build and where to build them.

In cities, old industrial buildings and deserted warehouses are being torn down to make way for new housing.

Young Millennials and older Baby Boomers are rejecting traditional suburban homes in favor of urban living. These two generations make up almost half of the American population,

Many plan to live near city centers so they can walk to work, shops and restaurants or take public transportation. They prefer smaller homes because they’re single or have no kids. They don’t want to spend much free time maintaining their homes, and they don’t want to spend a lot on gasoline.

Many 30-something professionals also plan to live in city neighborhoods rather than in the suburbs. And they don’t plan to live in multi-story condos, according to Smart Growth America’s LOCUS, a coalition of real estate developers and investors who are in favor of urban projects.

This is a dramatic shift in the types of homes people want, and it’s probably not temporary, experts say.

The Perils Homeowner’s Insurance Won’t Cover

If your house burns down, the insurance company will pay. Ditto if a tornado blows it away.

Some homeowners have been surprised to discover that their homeowner’s insurance does not cover flood damage. or damage from earthquakes and landslides.

Other common exclusions include damage from mold, broken pipes due to lack of routine maintenance, and sewage backups.

If you live in a high-risk area for floods, your mortgage company will require you to carry flood insurance.

Even if the risk is fairly small, flood insurance is a good idea, though it can cost $1,700 a year or more on a $150,000 building and $50,000 in coverage for contents.

Consider what problems place your home at the greatest risk and beef up coverage by adding endorsements, say experts at thisoldhouse.com.

This Week’s Market Commentary

This week is extremely light in terms of the number of economic reports that are scheduled for release that may influence mortgage rates. In fact, there are only two monthly or quarterly reports and neither is considered to be highly important to the markets. There are several Treasury auctions scheduled during the week, but only two of them are worth watching. This makes it likely that stock movement will heavily influence bond trading and mortgage rates several days.

There are two public speaking engagements by Fed Chairman Bernanke, neither of which is likely to cause volatility in the markets or mortgage pricing. The first is Monday morning when he will appear via prerecorded video at a conference in Boston. He is also hosting a town hall meeting on education Tuesday afternoon in Washington D.C. and will answer questions from people in attendance and via video feed. Both of these are considered to be of very low importance and have little chance to causing any havoc in the markets.

The first economic data of the week is Employee Productivity and Costs data for the second quarter that will be released early Wednesday morning. It will give us an indication of employee output per hour. High levels of productivity are believed to allow the economy to grow without fears of inflation. I don’t see this being a big mover of mortgage pricing, but since it is the only data of the day in a week with little else scheduled, it may influence rates slightly during morning trading. Analysts are currently expecting to see an increase in productivity of 1.5% and a 0.4% rise in labor costs. A stronger than expected productivity reading and a smaller than expected increase in costs could help improve bonds, leading to lower mortgage rates Wednesday.

June’s Trade Balance report will be released early Thursday morning. It gives us the size of the U.S. trade deficit but is the week’s least important report and likely will have little impact on the bond market and mortgage rates. Analysts are expecting to see a $47.5 billion deficit, but it will take a wide variance to directly influence mortgage pricing.

Also worth noting are two important Treasury auctions this week. The sale of 10-year Notes will be held Wednesday while 30-year Bonds will be sold Thursday. We often see some weakness in bonds ahead of the sales as the firms participating prepare for them. However, as long as they are met with decent demand from investors, the firms usually buy them back. This tends to help recover any presale losses. But, if the sales are met with a lackluster interest from investors- particularly international buyers, the bond market may move lower after the results are posted and mortgage rates may move higher. Those results will be announced at 1:00 PM each sale day.

Overall, it is difficult to label one particular day as the most important with so little to choose from. Monday may be a little interesting considering the size of Friday’s stock rally that pushed the Dow higher by 217 points, which drove bond prices lower. We would not be surprised to see the negative tone extend into tomorrow’s bond trading and mortgage rates, especially if stocks open higher. We never recommend straying far from your mortgage professional if still floating an interest rate, however, the markets and mortgage pricing are likely going to be much calmer than recent weeks.

Common Red Flags for Mortgage Loan Underwriters

Loan underwriters frequently see red flags that could prevent borrowers from getting a loan. John Ellis, our Senior Vice President, laid out some red flags he frequently sees:

• Borrowers buying properties separately when they are married
• Refinance where the appraised value is significantly higher than the recent acquisition cost
• Frequent employment changes / Recent increase in pay
• Recent undocumented deposits
• Lack of credit history
• Recently issued social security numbers
• Borrowers who have recently purchased other/multiple properties
• Parties in a transaction who share a last name (buyer, seller, Realtor, loan officer, appraiser, escrow officer)

A lot of these are avoidable, so be sure to keep this list in mind when applying for a home loan.